SNA: Base Year and Chainlinking

Constant price estimates for the components of GDP can be derived by stripping inflation out through deflating nominal values by appropriate price indices. Since constant price data (quantity * base year prices) based on the Laspeyres index form has the advantage of being additive, the components of GDP at constant prices will add up to GDP at constant prices.
 

Constant price estimates use the price relatives of one particular year, the base year, to weight together the volume components. Since each base year gives a different perspective resulting from those weights, the choice of base year will have an influence on the growth of GDP (See example below).

Because the pattern of relative prices becomes progressively less relevant as time goes by, it is necessary to update the base period/year to adopt weights that are more relevant to current conditions. 93SNA recommends that base year should be changed every year, rather than every fifth or tenth year, as has been the normal country practice.

When changing base year, the old constant price series needs to be linked to the series based on a new/different base year, resulting in a set of chain-linked time series. For a single index (e.g., government consumption) taken in isolation linking is a simple arithmetic operation. However, within an accounting framework it is not possible to preserve the accounting relationships between an aggregate and its components while at the same time linking the aggregate and its components separately. The chain linked series will not be additive,as linking results in loss of additivity.

The term base year is often used to indicate the period equal to 100, the weight-base period, or the price-base period of an index series, and this might cause confusion. No international standard terminology exists, and no complete or consistent terminology is presented in the 93SNA. However, common use of the terms among national accountants is as follows:

Reference period
- The period which is equal to 100
Base period
- The pricing year, the base year, for the constant price data in the national accounts
- The price base period, the period whose data are used as denominators in calculating the price relatives p_t/ p₀
- The quantity base period, the period whose quantities are used as denominators in calculating the quantity relatives q_t/ q₀
Weight period
- The period from which the weights are taken